Cha-Ching! It’s the first week of the month and time to cash these checks. It is not always easy, but I love owning rentals; especially now when rents are through the roof. The challenge now is finding property to buy. If you were lucky enough to pick up a few properties the last few years you are likely doing very well, but maybe you could be doing even better! Here are four ways to do even better on your rental portfolio.
Consider renting extra space separately. There is a tremendous amount of upside in this. Garages immediately come to mind, but I have also rented storage sheds separately and have heard of people renting sections of the lot for horse boarding or additional storage.
I have a property now that I rent the garage out separately. It is a two car garage that I rent for $200 a month. This one strategy increases my revenue by 10% and there is little to no expenses with the garage lease, so it actually increases profits by more than that!
Rent extra items. I have heard of rental property owners renting out items such as TVs, computers, or furniture to increase revenue. I have not done that, but I have rented washer/dryers separately. Washers and dryers tend to break down so I will never include them with my rental units. If I buy a property with a washer/dryer or I get one from a tenant that has moved out, I will typically either offer it to the tenant for free or rent it to them. Obviously, renting the washer and dryer will increase the monthly cash flow, but you will be responsible if something goes wrong. It could increase your headache, but it will also increase your profits. If the tenant does not want to rent them from you, you can offer it to them for free or you will want to remove them. The last thing you want is the responsibility of insuring the washer and dryer works without any income for the additional hassle.
Bill tenants for utilities. For some reason this was a hard one for me to do. I was taught early on that I, as the landlord, should pay for the water. The argument is that water is the one utility provider that can lien your property for nonpayment. Although that is true, it still makes since to have the tenant pay water. The worst case is the tenant does not pay and you have to.
In my market, it is becoming more acceptable to ask the tenant to pay all utilities, so why not give them what they expect? The two benefits are increase in cash flow for you and they will use less. I just spoke to Travis in my office about this. He has a tri-plex that had extremely high water bills. He was having trouble figuring it out and was paying that bill each month as the landlord. This was cutting into his profits by more than $300 a month!! The solution for him was to pay a company $2,500 to put in a system to individually meter each of the 3 units. Within one month, he discovered that one unit was responsible for most of the water usage and discovered that they were growing marijuana. Those tenants were asked to leave and were replaced with a much better tenant saving Travis over $150 a month. His next step will be to start sending invoices to each tenant for their water usage, which will increase his revenue by another $150.
Reduce turnovers. This one might sound obvious but is often overlooked. Turnovers can be very expensive. In fact, it is not uncommon for one turnover to ruin your profits on a unit for two or more years. The cause includes loss rent, marketing for a new tenant, repairs, and more. Reducing turnover can be complicated. Here are just a few ideas to help.
Screen tenants – This is the single best way to keep your turnovers low. It is extremely important to get quality tenants, and the only way to do that is to screen them properly. Obviously credit and criminal checks are essential, but it is also a good idea to interview your prospect about why they are moving and why they want to rent from you, call references, insure they can afford the rent and utility payments, have a stable drama free lifestyle, take care of their stuff (look in their car when you meet them), and have an emergency contact that will help them if they get into financial trouble.
Smaller rent increases – In a hot rental market like we are in, it is challenging to keep up with the pace in which rents are rising. Often times rent in the area is going up faster than I can raise the rent, which is a very positive thing. The reason this occurs for me is that I do not want to increase rent more than a tenant can afford. My experience is that if the tenant cannot afford the rent increase, they will not tell you. They will attempt to make it work and will eventually fall behind, creating a costly turnover. It is much better, in my opinion, to work with your tenant with reasonable increases and keep them happy and paying their rent each month.
Maintenance – I just had my maintenance team go out to a rental to unclog a shower drain. I got a bill for the service for $125. On the invoice it mentioned that he found hair in the drain. Why is it my responsibility to clear a drain that the tenant clogged? Well the answer is… it’s not. My lease states that I am not responsible for any clogged drain, so when I got the invoice I created an invoice that I sent to the tenant with a copy of the lease and a copy of the invoice I received for the maintenance call. I just got the $125 check in the mail today. Now the tenant is conditioned to take better care of the unit because I am not paying for issues they create.
The other thing about maintenance that has worked really well for me is to take care of items that I am responsible for right away. I do not delay at all. When I get a maintenance call, I will get my team on it right away. The tenant will normally hear from the person scheduled to fix the issue the same day. This has really helped me keep tenants. I have had tenants tell me several times how much they appreciate that. It is not uncommon for a tenant to ask me to rent them another place when they decide to move, and it is also not uncommon for me to hear that a tenant stayed longer than they wanted simply because I took care of them.
As I mentioned, buying rentals is challenging right now, so this is the perfect time to work on increasing profits on your current portfolio. This will help you exponentially down the road as you do find additional properties.